4.Loans to Banking Clients and Related Allowance for Loan Losses

The composition of loans to banking clients by loan segment is as follows:


	June 30,		December 31,
	2014		2013
Residential real estate mortgages	$	8,055	$	8,006
Home equity lines of credit		3,017		3,041
Personal loans secured by securities		1,804		1,384
Other		34		36
Total loans to banking clients (1)		12,910		12,467
Allowance for loan losses		(41)		(48)
Total loans to banking clients – net	$	12,869	$	12,419

(1)	All loans are evaluated for impairment by loan segment.

The Company has commitments to extend credit related to unused home equity lines of credit (HELOCs), personal loans secured by securities, and other lines of credit, which totaled $6.0 billion and $5.7 billion at June 30, 2014 and December 31, 2013, respectively. All of the personal loans were fully collateralized by securities with fair values in excess of borrowings at June 30, 2014 and December 31, 2013.

Changes in the allowance for loan losses were as follows:


Three Months Ended	June 30, 2014							June 30, 2013
	Residential							Residential
	real estate		Home equity					real estate		Home equity
	mortgages		lines of credit			Total		mortgages		lines of credit			Total
Balance at beginning of period	$	33		$	15	$	48	$	40		$	19	$	59
Charge-offs		-			(1)		(1)		(1)			(1)		(2)
Recoveries		1			-		1		-			1		1
Provision for loan losses		(6)			(1)		(7)		1			(2)		(1)
Balance at end of period	$	28		$	13	$	41	$	40		$	17	$	57



Six Months Ended	June 30, 2014							June 30, 2013
	Residential							Residential
	real estate		Home equity					real estate		Home equity
	mortgages		lines of credit			Total		mortgages		lines of credit				Total
Balance at beginning of period	$	34		$	14	$	48	$	36		$	20	$	56
Charge-offs		(1)			(2)		(3)		(3)			(3)		(6)
Recoveries		1			1		2		1			1		2
Provision for loan losses		(6)			-		(6)		6			(1)		5
Balance at end of period	$	28		$	13	$	41	$	40		$	17	$	57

Included in the loan portfolio are nonaccrual loans totaling $37 million and $48 million at June 30, 2014 and December 31, 2013, respectively. There were no loans accruing interest that were contractually 90 days or more past due at June 30, 2014 or December 31, 2013. Nonperforming assets, which include nonaccrual loans and other real estate owned, totaled $44 million and $53 million at June 30, 2014 and December 31, 2013, respectively. Troubled debt restructurings were not material at June 30, 2014 or December 31, 2013.

Schwab Bank provides a co-branded loan origination program for Schwab Bank clients (the Program) with Quicken Loans, Inc. (Quicken Loans®). Pursuant to the Program, Quicken Loans originates and services first lien residential real estate mortgage loans (First Mortgages) and HELOCs for Schwab Bank clients. Under the Program, Schwab Bank purchases certain First Mortgages and HELOCs that are originated by Quicken Loans. Schwab Bank sets the underwriting guidelines and pricing for all loans it intends to purchase for its portfolio. Schwab Bank purchased First Mortgages of $332 million and $928 million during the second quarters of 2014 and 2013, respectively, and $618 million and $2.2 billion during the first halves of 2014 and 2013, respectively. Schwab Bank purchased HELOCs with commitments of $175 million and $221 million during the second quarters of 2014 and 2013, respectively, and $347 million and $439 million during the first halves of 2014 and 2013, respectively. The First Mortgages purchased under the Program are included in the First mortgages loan class in the tables below.

The delinquency analysis by loan class is as follows:


							>90 days past
			30-59 days		60-89 days		due and other			Total		Total
June 30, 2014	Current		past due		past due		nonaccrual loans			past due		loans
Residential real estate mortgages:
First mortgages	$	7,856	$	10	$	3		$	23	$	36	$	7,892
Purchased first mortgages		157		1		-			5		6		163
Home equity lines of credit		3,003		4		1			9		14		3,017
Personal loans secured by securities		1,803		1		-			-		1		1,804
Other		34		-		-			-		-		34
Total loans to banking clients	$	12,853	$	16	$	4		$	37	$	57	$	12,910


							>90 days past
			30-59 days		60-89 days		due and other			Total		Total
December 31, 2013	Current		past due		past due		nonaccrual loans			past due		loans
Residential real estate mortgages:
First mortgages	$	7,808	$	3	$	4		$	30	$	37	$	7,845
Purchased first mortgages		154		1		-			6		7		161
Home equity lines of credit		3,025		2		2			12		16		3,041
Personal loans secured by securities		1,384		-		-			-		-		1,384
Other		36		-		-			-		-		36
Total loans to banking clients	$	12,407	$	6	$	6		$	48	$	60	$	12,467

In addition to monitoring delinquency, the Company monitors the credit quality of residential real estate mortgages and HELOCs by stratifying the portfolios by the year of origination, borrower FICO scores at origination (Origination FICO), updated borrower FICO scores (Updated FICO), loan-to-value (LTV) ratios at origination (Origination LTV), and estimated current LTV ratios (Estimated Current LTV), as presented in the following tables. Borrowers’ FICO scores are provided by an independent third party credit reporting service and were last updated in June 2014. The Origination LTV and Estimated Current LTV ratios for a HELOC include any first lien mortgage outstanding on the same property at the time of the HELOC’s origination. The Estimated Current LTV for each loan is estimated by reference to a home price appreciation index.


		Residential real estate mortgages
	First			Purchased					Home equity
June 30, 2014	mortgages			first mortgages			Total		lines of credit
Year of origination
Pre-2010		$	774		$	51	$	825		$	2,196
2010			427			7		434			182
2011			635			35		670			149
2012			2,256			26		2,282			153
2013			3,215			35		3,250			253
2014			585			9		594			84
Total		$	7,892		$	163	$	8,055		$	3,017
Origination FICO
<620		$	10		$	1	$	11		$	-
620 – 679			90			12		102			19
680 – 739			1,338			32		1,370			564
>740			6,454			118		6,572			2,434
Total		$	7,892		$	163	$	8,055		$	3,017
Updated FICO
<620		$	50		$	5	$	55		$	39
620 – 679			183			7		190			104
680 – 739			1,063			27		1,090			456
>740			6,596			124		6,720			2,418
Total		$	7,892		$	163	$	8,055		$	3,017
Origination LTV
<70%		$	5,362		$	113	$	5,475		$	2,019
>70% – <90%			2,516			44		2,560			975
>90% – <100%			14			6		20			23
Total		$	7,892		$	163	$	8,055		$	3,017


			Weighted				Percent of Loans
			Average		Utilization		that are on
June 30, 2014	Balance		Updated FICO		Rate (1)		Nonaccrual Status
Residential real estate mortgages:
Estimated Current LTV
<70%	$	6,771		775	N/A			0.06	%
>70% – <90%		1,130		765	N/A			0.37	%
>90% – <100%		74		738	N/A			2.21	%
>100%		80		734	N/A			8.08	%
Total	$	8,055		773	N/A			0.21	%
Home equity lines of credit:
Estimated Current LTV
<70%	$	2,154		773	36	%		0.08	%
>70% – <90%		652		763	47	%		0.25	%
>90% – <100%		110		753	57	%		0.91	%
>100%		101		746	60	%		1.22	%
Total	$	3,017		769	39	%		0.19	%

(1)	The Utilization Rate is calculated using the outstanding HELOC balance divided by the associated total line of credit.

N/A Not applicable.


		Residential real estate mortgages
	First			Purchased					Home equity
December 31, 2013	mortgages			first mortgages			Total		lines of credit
Year of origination
Pre-2010		$	859		$	55	$	914		$	2,304
2010			503			7		510			191
2011			733			38		771			155
2012			2,403			26		2,429			162
2013			3,347			35		3,382			229
Total		$	7,845		$	161	$	8,006		$	3,041
Origination FICO
<620		$	10		$	1	$	11		$	-
620 – 679			96			14		110			20
680 – 739			1,352			32		1,384			576
>740			6,387			114		6,501			2,445
Total		$	7,845		$	161	$	8,006		$	3,041
Updated FICO
<620		$	50		$	5	$	55		$	42
620 – 679			209			10		219			106
680 – 739			1,012			29		1,041			453
>740			6,574			117		6,691			2,440
Total		$	7,845		$	161	$	8,006		$	3,041
Origination LTV
<70%		$	5,306		$	110	$	5,416		$	2,040
>70% – <90%			2,523			45		2,568			977
>90% – <100%			16			6		22			24
Total		$	7,845		$	161	$	8,006		$	3,041


			Weighted				Percent of Loans
			Average		Utilization		that are on
December 31, 2013	Balance		Updated FICO		Rate (1)		Nonaccrual Status
Residential real estate mortgages:
Estimated Current LTV
<70%	$	6,649		775	N/A			0.05	%
>70% – <90%		1,181		763	N/A			0.34	%
>90% – <100%		86		732	N/A			4.77	%
>100%		90		730	N/A			10.50	%
Total	$	8,006		772	N/A			0.26	%
Home equity lines of credit:
Estimated Current LTV
<70%	$	2,127		773	36	%		0.13	%
>70% – <90%		664		762	48	%		0.22	%
>90% – <100%		127		752	59	%		1.22	%
>100%		123		743	63	%		1.34	%
Total	$	3,041		769	39	%		0.24	%

(1)	The Utilization Rate is calculated using the outstanding HELOC balance divided by the associated total line of credit.

N/A Not applicable.